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Keynote Capitals Stock Ideas

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Keynote Capitals Stock Ideas

  1. 1.       K E Y N O T E Keynote Capitals Research – September 20, 2011Stock IdeasStocks Covered Page No. Bharti Airtel Ltd. 1 DB Corp Ltd. 3 Dr Reddy’s Ltd. 5 Hero Moto Corp Ltd. 7 Marico Ltd. 9   Keynote Capitals Research    Keynote Capitals Institutional Research –awarded “India’s Best IPO Analyst 2009” by MCX‐ Zee Business   
  2. 2.         K E Y N O T EBhart Airtel ltd ti d. Bharti Airtel Ltd. is on of the wo ne orld’s leading providers of telecommunication servic ces Key S Stock Data sence in 19 co with pres ountries including India an countries fr nd rom South As sian and AfriccanSector Telecom region. The Company served an ag ggregate of 2220.9mn custo omers and its net sales sto oodCMP `386.95 `59467.220Cr for FY11. The Comp pany is the la argest wireless service pr rovider in Ind dia,52wk H High/Low `444/304 based on the number of customers as on 31st M n s March, 2011. It offers an int tegrated suite of eMarket Cap t `146944Cr telecom ssolutions to its customers, in addition to providing lon distance c s o ng connectivity booth ($3265Cr) nationally and internat y tionally. The Company als offers DTH (Direct-to-H so H Home) and IPTV6m Avg daily vol g. 542193 services. All these services are rendered under a unified br rand “Airtel” e either directly or yBSE Se ensex 16745.35 through ssubsidiary commpanies. Stock Codes k Recen ntly, the com mpany awarde license to operate 2G and 3G mo ed obile services in sReco ‘Buy’ Rwand Rwanda is amongst the fastest grow da. wing telecom markets in A Africa.Reuter Code rs BRTI.BO BBSE Code 532454 5 The c company hinte that mobile tariffs may increase further due to rising operating ed yNSE C Code BHARTIARTL B L cost. T company has already hiked its pr The y y re-paid on ne tariff rates in six circles by etFace V Value `5 ` 20% from 1.0 paise per second to 1.2 paise per second in July, 2011. We believe th e n hat vent could lea to improvin ARPM and margin expa this ev ad ng d ansion going fforward. Share eholding patt tern 3G se ervices could be a growth driver for the company. Bharti Airtel h had bagged 3G (30th J June, 2011) spectrrums in 13 out of the 22 telecom circles through a auction he last year, for an eld Other `12,2995Cr. The company has a already launch 3G servic in many c hed ces cities. The initial DII s respon has been overwhelmin and Airtel has emerged as the mark leader with 3 nse n ng d ket h 8% 6% million 3G customers out of th total 9 mil n he llion users of this service The compa f e. any FII plans to offer serv vices like vide calls, live streaming of video, high speed intern eo f net, % 18% mobile TV, etc. e Prom oters Key Financials           68% (` C Cr) Particulaars FY077 FY088 FY009 FY10 FY Y11 Total Sales 18535.23 3 27035.26 6 37334.1 12 41781.58 59433.00 YoY Grow % wth 46.16% % 38.28 8% 11.99 9% 42.17% Price Performance (%) ) Total Exppenditure 11271.22 2 16004.03 3 22361.4 44 25312.21 39501.501 Mth 3 Mths 6 Mths 1 Yr EBITDA 7264.01 1 11031.23 3 14972.6 68 16469.37 19931.50-0.6% 3.0% 3.2% 8.7% 23 YoY Grow % wth 51.86% % 35.73 3% 10.00 0% 21.02 2% Depreciat tion 2448.66 6 3471.41 1 4672.7 77 6199.41 10206.60 Stock Price Perfo k ormance EBIT 4815.35 5 7559.82 2 10299.9 91 10269.96 9724.90 Bharti airtel ltd B Bse sensex Other incoome 173.03 3 360.03 3 597.4 48 1270.87 488.20 120 Interest 309.99 9 608.29 9 2306.3 38 645.40 2534.90 PBT 4678.39 9 7311.56 6 8591.0 01 10895.43 7678.20 110 Tax 568.05 5 816.15 5 546.8 83 1533.91 1779.00 100 PAT 4110.34 4 6495.41 1 8044.1 18 9361.52 5899.20 YoY Grow % wth 58.03% % 23.84 4% 16.38 8% -36.98 8% 90 EPS (`) 10.82 2 17.10 0 21.1 18 24.65 15.53 80 EBITDA M Margin 39.30% % 40.84% % 40.09 9% 39.37 7% 33.52 2% PAT Marg gin 22.24% % 24.05% % 21.54 4% 22.38 8% 9.92 2% PE (x) 35.61 1 24.51 1 15.2 24 13.00 24.00 (Source - Keynote Capita Ltd.) als 1 Keyn note Capitals Research s
  3. 3. K E Y N O T E The company has fast growing customer base. It has crossed the significant milestone of 200 million customers for all territories during the quarter ended December, 2010. As on Q1FY12, the company had an aggregate of 230.8 million customers consisting of 221.2 million Mobile, 3.3 million tele-media and 6.3 million DTH customers. Its total customer base as on Q1FY12 increased by 25.9% compared to the customer base as on Q1FY11. Total customer base (in mn) 300.00 220.88 230.83 200.00 137.01 97.59 100.00 0.00 FY09 FY10 FY11 Q1FY12 Total customer base The acquisition of Zain’s African business has given geographical diversification to the company. It is targeting 100 million subscribers by the end of FY13 from this continent. Currently, Airtel Africa has over 46 million customers, added 2.1 million new customers across 16 countries of Africa after the acquisition. It plans to increase its revenues to $5bn and EBITDA to $2bn by the end of the next financial year. Valuation and Outlook We have a positive outlook on Bharti Airtel and believe that the company with its strong customer base growth and 3G spectrum in key circles is best placed to benefit in the Telecom sector in the long-term. The company indicated that mobile tariffs may go up further. This could be positive move from the company and will help sustain margins going forward. Peers comparison (FY11) (` Cr) Company Sales PAT EPS (`) ROCE (%) RONW (%) Bharti Airtel 59433.00 5899.20 15.53 13.28 13.07 Idea Cellular 12397.88 953.94 2.89 8.32 7.43 Rel. Comm. 24908.98 1505.82 7.21 2.92 2.77      (Source - Keynote Capitals ltd.) Bharti Airtel has a market capitalization of `146944Cr and is trading at a share price of `386.95 per share. The consolidated TTM EPS is `15, translating into a TTM PE of 30x. The stock is an attractive buy considering the growth prospects of the industry as well as the company.Keynote Capitals Research 2  
  4. 4.                    K E Y N O T E DB Corp Ltd. Key Stock Data DB Corp Ltd. (DBCL) is a leading print media company in India. Its newspapers and magazines, published in four languages, have a strong readership base of aroundSector Print Media 18.1mn. DBCL currently has a presence in 13 state and many of these states enjoyCMP `219.20 good economic growth prospects, because of which the company is a play on regional52wk High/Low `307/216.4 growth in the Indian print sector. In terms of average readership per day, DBCL’s HindiMarket Cap `4017Cr newspaper, Dainik Bhaskar, is a market leader in the states of Madhya Pradesh, ($8.51bn) Chandigarh, Chhattisgarh and Haryana. The company is also the leader in the urban6m Avg. daily vol 92,337 areas of Gujarat, Rajasthan and Punjab.BSE Sensex 16,745.35 DBCL also has a presence in the radio business, under the brand name, MY-FM. Stock Codes Currently, it runs 17 FM radio stations at locations where its publications have an established presence, which helps it in cross-sell advertising space to local companies.Reco. ‘Buy’Reuters Code DBCL.BO DBCL also operates Internet and Short Messaging Service (SMS) portals through itsBSE Code 533151 subsidiary, I Media Corp. Ltd. (IMCL). A division of DB Corp, DB Activation, is engagedNSE Code DBCORP in organizing events such as road shows, mall activities, live entertainment shows, tradeFace Value `10 shows, conferences, trade meetings, exhibitions and shopping festivals. DBCL entered the state of Jharkhand with the launch of the Dhanbad edition in Shareholding pattern April 2011. Subsequently, it launched its second Marathi edition from Nashik in July (30th June, 2011) 2011 and it plans to launch in other cities of Maharashtra including Jalgaon over 2011-12. The company is expected to complete its Bihar foray by FY13. The FII company is looking to ramp up its internet business rapidly. Its page views have 5% also gone up from 8 million to over 100 million in the last 15 months. Prom DII 4% DBCL had last hiked advertising rates by about 14% in April 2010, for all editions oters 86% Othe (excluding Divya Bhaskar) across states. The ratio of colour and black & white rs advertisements in DBCL’s publications stood at 70:30 in FY11. As the rates for 5% colour advertisements are twice that of black & white advertisements, the company is expected to earn higher realisations and yields, going forward. Price Performance (%) Key Financials (`Cr)1 Mth 3 Mths 6 Mths 1 Yr FY07 FY08 FY09 FY10 FY11-6.5% -5.9% -13.6% -16.6% Net Sales 663.32 839.01 920.57 1013.77 1247.33 YoY Growth (%) 25.7% 26.5% 9.7% 10.1% 23.0% Stock Price Performance Total Expenditure 574.46 647.48 770.63 680.06 853.12 120 EBITDA 88.86 191.53 149.94 333.71 394.21 115 YoY Growth (%) 20.4% 115.5% -21.7% 122.6% 18.1% 110 105 Margin 13.4% 22.8% 16.3% 32.9% 31.6% 100 Interest 20.16 24.27 46.45 32.34 15.28 95 90 Depreciation 10.88 14.69 17.8 26.64 42.77 85 PBT 67.3 164.15 111.32 304.75 366.97 80 Tax 5.41 62.75 42.84 105.71 99.65 Oct-10 Sep-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 Jun-11 Jul-11 Aug-11 Nov-10 May-11 PAT 61.89 101.4 68.48 199.04 267.32 YoY Growth (%) 77.3% 63.8% -32.5% 190.7% 34.3% DB Corp. BSE Sensex Margin (%) 9.3% 12.1% 7.4% 19.6% 21.4% EPS (`) 289.21 6.01 4.06 10.97 14.59 (Source - Keynote Capitals ltd.) 3 Keynote Capitals Research
  5. 5. K E Y N O T E Ind dia’s total med expenditu as a perc dia ure centage of GD stands at around 0.41%, DP t which is quite lo in compar ow rison to 1.08% in the US, 0.9% in Japa and a global % an, aveerage of aro ound 0.8%. We believe that the adv vertising exp penditure, as a s perrcentage of G GDP, should increase on th back of str he rong economic growth, rising disposable incom growing c me, consumerism and changin demograph m ng hics. Growth in quarterly English/Hindi ad-revenue n E e Grow in Circul wth lation revenu ue 300 281 283 40. .0% 58 57 6.0% 236 236 2 2 249 250 201 20 218 191 00 30. .0% 56 200 54 4 54 54 4.0% 150 20. .0% 54 53 53 53 53 53 100 2.0% 10. .0% 52 50 0 0% 0.0 50 0.0% (`Cr) ( (`Cr) Adver rtising revenue e (LHS) oy growth (RHS) yo Circulation n revenue (LHS) yoy gro owth (RHS) Valua ation and Outlook DBCL’s expansion into new terr ritories, coupled with eco onomic growt will drive th growth in advertising revenues, going forward. It has plann a capital expenditure g . ned of `90-100Cr for FY12E. As per th consensus estimates, D he s DBCL is tradin at 15.31x ng FY12 EP of `14.33 and 13.02x FY13 EPS of `16.84. How PS f wever, the company may face com ssure in the new markets from the existing players. mpetitive pres  Keyno Capitals R ote Research 4  
  6. 6.     K E Y N O T E Dr. Reddy’s Laboratories Ltd. Dr.Reddys Laboratories Ltd. (DRL) is an integrated global pharmaceutical companyKey Stock Data having strong generic opportunities in the US, favourable positioning in Russia andSector Pharma expanding bio-similars portfolio are healthy indicators of the stock in the long run. DRLsCMP `1512.15 acquisition of GSKs penicillin facility in the US opens up newer avenues for growth as it52wk High/Low `1855/1387 has allowed the company an entry into the US penicillin-based anti-bacterial marketMarket Cap `256.15bn segment (through brands such as Augmentin and Amoxil). ($5390.36mn)6m Avg. daily vol 33251 DRL’s settlement with Pfizer is for resolving litigation related to Lipitor tablets ofBSE Sensex 16,745.35 strengths 10 milligram (mg), 20 mg, 40 mg, and 80 mg, known generically as Atorvastatin calcium tablets.Reco ‘Buy’BSE Code 500124 Steady growth in its baseline revenue and upsides from periodically successful ParaNSE Code DRREDDY IV ‘first-to-file launches in the US (either with 180-days exclusivity or as anFace Value `5 authorised generic supplier to the innovator) buoy up the growth prospects for the company. DRL filed 21 abbreviated new drug applications (ANDAs) in 2010-11, taking the cumulative total to 179 ANDAs (including partnered ANDAs). The company Shareholding pattern (30th June, 2011) has 76 pending approvals, of which 36 are Para IV filings and 11 are in the ‘first to file category. The company also filed 56 drug master files (DMFs) in 2010-11, taking Publi its overall count to 486. c &  othr  14% Dr. Reddy’s entered into an agreement with JB Chemicals & Pharmaceuticals to Prom FIIs  acquire the latter’s prescription portfolio of 20 brands in the Russia and other CIS oters  45% regions for $34.85mn. The key ones are Metrogyl and Jocet. Prior to this, JB 26% Pharmaceuticals had sold its OTC business in Russia and CIS countries to Cilag DIIs  GmbH International, a wholly-owned subsidiary of Johnson & Johnson, for `938Cr. 15% It recently received a final nod from the US FDA to launch the fondaparinux sodium injection — a bioequivalent generic version of GSKs Arixtra that would also support growth in the US. The approval opens up significant earnings potential for the Price Performance (%) company, considering that the Arixtra brand had US sales of approximately $340mn1 Mth 3 Mths 6 Mths 1 Yr for the 12-months ended May 2011.-0.53% -5.06% -4.53% 0.66% Stock Price Performance Key Financials (`Cr) 140 Particulars FY07 FY08 FY09 FY10 FY11 130 Net Revenues 6513.88 4991.68 6900.63 7027.65 7469.28 120 EBITDA 1771.63 1042.66 -61.50 616.81 1677.53 110 Net Profit (Adj) 965.54 438.13 284.77 106.76 1104.00 100 Earnings Per Share 32.42 26.07 - 6.33 65.28 90 Price Earnings 12.79 23.26 - 67.38 28.64 80 EBIDTA Margin (%) 27.29% 21.14% -0.74% 15.31% 21.91% PAT Margin (%) 14.82% 8.78% 4.13% 1.52% 14.78% RONW (%) 23.96% 9.99% 15.09% 20.72% 20.84% Dr.Reddys Lab ROCE (%) 31.83% 10.30% 6.56% 15.61% 25.58% BSE_SENSEX Sources: Keynote Capitals Ltd. 5 Keynote Capitals Research
  7. 7. K E Y N O T E Revenue Break Up (`Cr) Particulars  Q1FY11 Q4FY11 Q1FY12  YOY (%) QOQ (%) Global Generics 1192 1417 1442 21.0 1.8 North America 390 592 576 47.7 -2.7 Europe 194 201 192 -1.0 -4.4 India 278 275 296 5.7 7.0 Russia & Other CIS 255 268 302 18.3 12.6 Others 75 82 80 5.7 -2.6 PSAI 450 555 483 7.4 -13.0 North America 84 75 84 0.6 12.4 Europe 156 208 169 8.9 -18.8 India 63 71 66 4.6 -6.9 RoW 147 201 165 10.9 -18.5 Proprietary Products 42 45 53 27.2 16.6 Total 1683 2017 1978 17.5 -1.9 For the quarter ended June 2011, DRLs global generics business grew by over 21% driven primarily by strong growth in North America (up by 47%), which was led by launches of last year and market share increase across key products lansoprazole, tacrolimus and omeprazole OTC, to name a few. With several new launches Allegra D24 and Olanzapine are expected this year, the US is likely to remain the revenue driver. Russia & CIS which contributed 15% grew by 18% on back of significant volume growth in key brands. (`Cr)Particulars Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12Net Sales 1836.81 1729.64 1642.25 1683.13 1870.37 1898.51 2017.27 1978.32Other Income 14.01 17.35 20.93 18.64 22.2 19.79 50.48 18.7Total Income 1850.82 1746.99 1663.18 1701.77 1892.57 1918.3 2067.75 1997.02Total Expenditure 1496.19 1377.27 2215.02 1341.62 1464.82 1518.41 1578.48 1594.71PBIDT 354.63 369.72 -551.84 360.15 427.75 399.89 489.27 402.31Less: Interest -20.85 5.03 2.53 17.74 3.49 4.98 -7.44 4.65PBDT 375.48 364.69 -554.37 342.41 424.26 394.91 496.71 397.66Less: Depreciation 98.7 964.08 -760.15 97.6 104.79 106.58 105.8 123.38Tax 59.51 -77.69 44.06 35.73 32.65 15.19 56.74 11.94Profit After Tax 217.27 -521.7 161.72 209.08 286.82 273.14 334.17 262.34EPS (`) 12.88 - 9.86 12.41 16.95 16.14 19.76 15.52PBIDTM (%) 19.31 21.38 -33.6 21.4 22.87 21.06 24.25 20.34PBDTM (%) 20.44 21.08 -33.76 20.34 22.68 20.8 24.62 20.1PATM (%) 11.83 -30.16 9.85 12.42 15.33 14.39 16.57 13.26 DRL’s consolidated net profit rose 25% to `262.34Cr on 18% increase in net sales to `1978.32Cr in Q1 June 2011 over Q1 June 2010. Revenues from Global generic business increased by 21% to `1442.40Cr for the quarter ended June 2011, contributing 70% to the total sales. Strong generic opportunities in the US, supported by its pipeline of product releases and favorable positioning in Russia, the management expect DRL to show robust growth going forward on the back of strong performance in the US, India and Russia business. Keynote Capitals Research 6  
  8. 8.     K E Y N O T E Hero Moto Corp Ltd. Hero Moto Corp Ltd. (Formerly Hero Honda Motors Ltd.), the worlds largestKey Stock Data manufacturer of two – wheelers, has 3 manufacturing units at Gurgaon, Dharuhera andSector Auto Haridwar with total capacity of 6.15mn. The company is pioneer in fuel efficientCMP `2210.00 technology with introduction of 4-stroke motorcycles and became first to launch the fuel52wk High/Low `2232/1378 injection technology in Indian motorcycles with the launch of Glamour FI in June 2006.Market Cap `441.34bn The company has more than 5000 outlets comprising a mix of authorized dealerships, ($9594.3mn) service & spare parts outlets, and dealer-appointed outlets across the country. Hero Moto6m Avg. daily vol 68161 Corp recently unveiled a new brand after the two-wheeler major ended its long standingBSE Sensex 16745.35 partnership with Japans Honda Motor.Reco ‘Buy’ The company is targeting 6mn units in terms of volume and has already sold 2.46mnBSE Code 500182 units in 5 month which around 41% of the target and is in-line with company’sNSE Code HEROMOTOCO estimates.Face Value `2 The company expects the margins to improve in Q2 & Q3 due to marginal softening of the commodity prices and benefit of price hike taken in June 2011 despite incurring Shareholding pattern (30th June, 2011) the re-branding cost in Q2 and Q3 FY12. The company had hiked the vehicle prices by `500-750 per vehicle in June 24th, 2011. It would incur re-branding cost of roughly DIIs  `100Cr over and above advertising cost for the same. The tax rate would continue at 4.57% Public  9.56% 17% for the remaining quarters of FY12 as witnessed in Q1FY12. Prom The company is expanding capacity from 6.15 million vehicles as on 31st March 2011 FIIs  oters  to 6.4 - 6.5 million vehicles by end of FY12 through various measures at existing 33.67 52.21 plants such as de bottlenecking, out sourcing parts, etc. The urban demand is driven % % by premium motorcycles and scooters. The company is witnessing capacity constraint for their premium bikes which would improve post capacity expansion. The growth in rural market is faster than in urban market. Rural sales constitute 45%Price Performance % of its sales volume now compared to 38% in 2008-09. Due to good monsoon, it is expected to be strong.1 Mth 3 Mths 6 Mths 1 Yr16.8% 26.7% 45.1% 26.8% Key Financials (`Cr) Stock Price Performance Particulars FY07 FY08 FY09 FY10 FY11 Net Revenues 9894.52 10335.24 12319.12 15758.18 19245.03 Hero Moto Nifty 130% Growth (%) - 4.45% 19.20% 27.92% 22.13% EBITDA 1387.49 1572.6 1964.65 3025.3 2822.94 110% Growth (%) - 13.34% 24.93% 53.99% -6.69% Net Profit 777.11 879.19 1180.63 2081.8 1842.11 90% Growth (%) - 13.14% 34.29% 76.33% -11.51% 70% EPS (`) 40.07 45.24 60.79 93.18 79.51 Price Earnings (x) 17.1 15.26 17.6 20.85 19.95 EBIDTA Margin (%) 14.02% 15.22% 15.95% 19.20% 14.67% PAT Margin (%) 7.85% 8.51% 9.58% 13.21% 9.57% RONW (%) 38.30% 35.48% 37.77% 61.43% 60.05% ROCE (%) 51.66% 40.09% 50.99% 76.48% 60.68% 7 Keynote Capitals Research
  9. 9. K E Y N O T E EBIDTA Margins to rise in coming quarters Due to the significant rise in commodity price, margins were squeezed from 15% to 8.4% which has now begun to rise due to softening of commodity price from last 2 quarter and is expected to further come down in near future thereby improving company’s margins. Consistently paying dividends Since 1991, company is paying dividend which has increase from 20% to 5500%. Last year company paid dividend of `105 per share. As company has enough cash which would be utilize for capacity expansion. Therefore, the company is in position of giving dividend in coming years.Year End FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11Dividend Paid (` Cr) 339 359 399 399 399 339 379 399 2197 2097Dividend (%) 850 900 1000 1000 1000 850 950 1000 5500 5250Div. Yield (%) 5.09 9.55 4.08 3.65 2.25 2.48 2.75 1.87 5.66 6.62 Higher ROE & ROCE as compared to its peers The company has ROE of 60%, which indicates amount earned by the investor and ROCE of 61%, which indicates the efficiency of the company in using its resources. Both have increased to current levels from 38% and 52% levels in FY07, respectively. (` Cr)Particulars Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12Net Sales 4040.1 3814.42 4092.61 4264.61 4511.29 5118.19 5350.94 5637.64Other Income 68.71 54.95 69.49 53.42 78.35 62.03 74.34 88.41Other Operating Income 29.5 25.01 29.71 32 40.66 43.47 39.99 45.69Total Income 4138.31 3894.38 4191.81 4350.03 4630.3 5223.69 5465.27 5771.74Total Expenditure 3325.43 3178.51 3410.58 3694.07 3944.01 4664.92 4561 4865.57PBIDT 812.88 715.87 781.23 655.96 686.29 558.77 904.27 906.17Less: Interest -6.1 -4.59 -4.47 -2.66 -2.07 -5.22 8.1 -3.19PBDT 818.98 720.46 785.7 658.62 688.36 563.99 896.17 909.36Less: Depreciation 50.34 46.89 48.66 48.28 60.75 55.96 237.39 239.79Tax 171.5 137.8 138.23 118.65 122.01 79.03 157.17 111.68Profit After Tax 597.14 535.77 598.81 491.69 505.6 429.00 501.61 557.89EPS (`) 29.9 26.83 29.99 24.62 25.32 21.48 25.12 27.94EPS TTM (`) 90.12 101.91 111.76 111.34 106.76 101.41 96.54 99.86PBIDTM (%) 20.12 18.77 19.09 15.38 15.21 10.92 16.9 16.07PBDTM (%) 20.27 18.89 19.2 15.44 15.26 11.02 16.75 16.13PATM (%) 14.78 14.05 14.63 11.53 11.21 8.38 9.37 9.9 Valuations: The management expects margins to improve considerably giving an opportunity for further upside. At current market price, Hero Honda is trading at PE multiple of 19.8x of Q1FY12 annualized earnings.Keynote Capitals Research 8  
  10. 10.     K E Y N O T E  Marico Ltd.Key Stock Data Marico is one of the leading Indian FMCG players in the beauty and wellness space offering products and services in hair care, health care and skin care segments toSector FMCG consumers in domestic and international markets. The company was incorporated in 1988,CMP `140.70 under the name Marico Foods Ltd.52wk High/Low `173 / 112Market Cap `86.50bn Marico has a wide distribution network of over 3.3mn outlets in India and overseas. The ($1922.22mn) company is primarily based in India while international presence is flourishing. The6m Avg. daily vol 83,506 company’s international markets include Middle East, SAARC countries, Egypt and SouthBSE Sensex 16745.35 Africa. Investment RationaleReco ‘Buy’ Marico’s edible oil segment branded under Saffola caters to a niche of healthBSE Code 531642 conscious people. It is a pricing and market leader in this segment. Fast growingNSE Code MARICO Indian economy has seen a major transition in the lifestyle of people. ConsciousnessFace Value `1 towards hygiene and health is rising and a reason for spurt in the health and wellness markets. The company’s Saffola brand volume registered a CAGR of 15% while its revenues reported a CAGR of 18% during FY05-10, which is likely to continue, going Shareholding pattern (30th June, 2011) forward. The brand is expected to report a CAGR of 15-17% in terms of volume growth during FY11-14. Marico’s Parachute brand has become a generic name in coconut oil segment in Prom India. The company holds both pricing as well as volume leadership in this segment. oters Presence of the unorganized market in villages was a major concern in this segment, 63% FII 26% which Marico is resolving through selling economy packs at affordable prices leading to an increase in volume growth. The company also caters fast growing value added Other light hair oil segment in the hair oil category. s DII Marico’s international business contributes ~23% to total revenue and grew at a 7% 4% CAGR of 36% over past 4 years. Going forward, the segment is expected to grow at a CAGR of 20% during FY11-14.Price Performance % There are few triggers for the company’s stock price, going forward. These include, • Robust topline growth driven by strong business momentum across categories1 Mth 3 Mths 6 Mths 1 Yr • Further, Maricos thrust on increasing traction in rural market by expanding its5.5% 17.5% 25.8% 30.9% distribution network through direct coverage of retail outlets, • Launch of budget SKUs, Stock Price Performance • Competitive/penetrative pricing and 140% • New product initiatives such as coconut based cooling oil 130% • Further, the company’s profitability is likely to improve, going forward as raw 120% material prices seem to have peaked and are expected to soften due to flush 110% 100% season, the impact of which will be visible during second and third quarter. 90% • Kaya domestic business has also shown signs of revival however it is yet to 80% achieve breakeven. Hence, we believe Kaya is likely to remain an overhang in Sep-10 Nov-10 Dec-10 Aug-11 Sep-11 Oct-10 Apr-11 Feb-11 Mar-11 May-11 Jul-11 Jan-11 Jun-11 the near term. Valuation and View Marico Sensex As per the consensus estimates, Marico’s EPS will show a CAGR of 19.5% higher than its competitor Dabur India. The company’s 2 year forward PEG ratio 0.91x is much lower than it’s peer Dabur’s 1.21x, indicates a scope for share price appreciation. 9 Keynote Capitals Research
  11. 11. K E Y N O T E Key Financials (`Cr) Particulars FY07 FY08 FY09 FY10 FY11 Net Revenues 1556.92 1905.04 2388.42 2660.76 3128.31 Growth (%) - 22.36% 25.37% 11.40% 17.57% EBITDA 198.56 246.22 288.96 365.36 379.31 Growth (%) - 24.00% 17.36% 26.44% 3.82% Net Profit 98.61 160.28 199.8 240.15 253.25 Growth (%) - 62.54% 24.66% 20.20% 5.45% EPS (`) 1.62 2.63 3.28 3.94 4.12 P/E (x) 42.4 21.1 31.4 30.5 39.1 EBIDTA Margin (%) 12.8% 12.9% 12.1% 13.7% 12.1% PAT Margin (%) 6.3% 8.4% 8.4% 9.0% 8.1% RONW (%) 51.3% 50.9% 44.1% 36.7% 27.7% ROCE (%) 39.2% 35.0% 32.1% 29.1% 24.3% Quarterly Financials (`Cr) Particulars Q1FY12 Q1FY11 Change Q4FY11 Q4FY10 Change Net Sales 807.59 585.00 38.0% 621.07 458.40 35.5% Total Expenditure 700.39 499.00 40.4% 524.96 383.75 36.8% EBITDA 107.2 86.00 24.7% 96.11 74.65 28.7% Other Income 4.31 2.83 52.3% 98.45 7.36 1237.6% Interest 6.60 4.70 40.4% 15.64 3.58 336.9% PBDT 104.91 84.13 24.7% 178.92 78.43 128.1% Depreciation 7.13 5.18 37.6% 8.22 7.54 9.0% Tax 16.16 11.38 42.0% 38.89 10.48 271.1% Reported PAT 81.62 67.57 20.8% 131.81 60.41 118.2% Extra-ordinary Items 0.00 0.00 0.0% 71.09 0.00 0.0% Adjusted PAT 81.62 67.57 20.8% 60.72 60.41 0.5% EBITDA margin 13.3% 14.7% -1.4% 15.5% 16.3% -0.8% EPS (`) 1.33 1.11 19.8% 0.99 0.99 -0.3% Paid up Equity Cap 61.46 60.94 0.9% 61.44 60.93 0.8Keynote Capitals Research 10  
  12. 12.     K E Y N O T E  KEYNOTE CAPITALS LTD. Member Stock Exchange, Mumbai (INB 010930556) National Stock Exchange of India Ltd. (INB 230930539) Over the Counter Exchange of India Ltd. (INB 200930535) Central Depository Services Ltd. (IN-DP-CDSL-152-2001) 4th Floor, Balmer Lawrie Building, 5, J. N. Heredia Marg, Ballard Estate, Mumbai 400 001. INDIA Tel. : 9122-2269 4322 / 24 / 25 • www.keynoteindia.net DISCLAIMER • This report has been prepared and issued by Keynote Capitals Limited, based solely on public information and sources believed to be reliable. • Neither the information nor any opinion expressed herein, constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities and also for the purpose of trading activities. • Keynote Capitals Limited makes no guarantee, representation or warranty, express or implied and accepts no responsibility or liability as to the accuracy or completeness or correctness of the information in this report. • Keynote Capitals and its affiliates and their respective officers, directors and employees may hold positions in any securities mentioned in this Report (or in any related investment) and may from time to time add to or dispose of any securities or investments. • Keynote Capitals may also have proprietary trading positions in securities covered in this report or in related instruments. • An affiliate of Keynote Capitals Limited may also perform or seek to perform broking, investment banking and other banking services for the company under coverage. • If ‘Buy’, ‘Sell’, or ‘Hold’ recommendation is made in this Report, such recommendation or view or opinion expressed on investments in this Report is not intended to constitute investment advice and should not be intended or treated as a substitute for necessary review or validation or any professional advice. The views expressed in this Report are those of the analyst which are subject to change and do not represent to be an authority on the subject. Keynote Capitals may or may not subscribe to any and/ or all the views expressed herein. • The opinions presented herein are liable to change without any notice. • Though due care has been taken in the preparation of this report, Keynote Capitals limited or any of its directors, officers or employees shall be in any way be responsible for any loss arising from the use thereof. • Investors are advised to apply their judgment before acting on the contents of this report. • This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Keynote Capitals Limited. 11 Keynote Capitals Research

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